Is Germany Pioneering a Global Transformation of the Energy Sector?

The global power landscape is undergoing a profound change. Driven by a confluence of forces—chief among them being environmental concerns, worries over energy security, and advances in technology—countries are beginning to move away from conventional, fossil-fuel-based power generation in favor of renewable-energy sources, distributed generation, and managed demand. Increasingly, they are even rethinking their use of nuclear power—for safety reasons in some countries, for economic reasons in many others. As this trend, which is still in its early stages, broadens and gathers pace, it will transform virtually every aspect of how electricity is generated and consumed, with the long-term potential for a cleaner environment, greater energy security, and increasingly competitive electricity prices.

But the transition away from conventional power generation promises to be rocky for all parties. Grids and system stability will be severely strained as the share of intermittent renewable-energy sources in the energy mix increases. Governments may struggle to ensure that there is sufficient investment to fund the huge necessary expenditures. Retail electricity prices will rise for a decade or two. Conventional utilities, which have long presided over the industry’s hierarchy and ensured system stability, will find their revenues and profits under intensifying pressure as their traditional business model becomes less relevant. Indeed, some utilities may be driven to extinction.

Germany, whose government has defined a vision for the country’s energy future that strongly emphasizes renewable sources and energy efficiency (see the Federal Ministry of Economics and Technology’s Energy Concept for an Environmentally Sound, Reliable and Affordable Energy Supply, issued in September 2010), is at the forefront of this move away from conventional generation. Although Germany’s circumstances are unique in key respects—notably the strong stance against nuclear energy and aggressive targets for the adoption of renewable-energy sources—the country’s efforts are being closely watched by the rest of the world. If successful, Germany could serve as a model for countries with similar aspirations. For these reasons, it is worthwhile to examine Germany’s efforts in some detail.

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